This year is supposed to be the Year of the Launch for the new generation of mobile virtual network operators, the time when these MVNOs get on their feet and begin to gain traction in the wireless race. With several high-profile MVNOs already launched, others well on their way and still more promising to get in the game soon, the marketplace is becoming increasingly crowded-even as Sprint Nextel Corp., arguably the most MVNO-friendly of carriers, says it doesn’t intend to add many more companies to its roster.
Analysts expect fallout in the much-hyped MVNO space, and so the question becomes whether MVNOs are dashing headlong toward a gold rush-or off a cliff. With various MVNOs targeting ethnic markets and different age demographics, the skepticism often seems to be rooted in the fact that the majority of the fledgling players seem to be targeting a similar demographic: the young, cool, tech-savvy and content-hungry audience of 18-to-35-year-olds, presumably with money to burn on wireless services.
These are the sort of people that Helio L.L.C. founder Sky Dayton likes to call “young, passionate consumers.” Mobile ESPN L.L.C. wants to collar the sports fanatics among them, Amp’d Mobile Inc. and Helio want to lure the ones obsessed with having the latest and greatest gadgets and content. Virgin Mobile USA L.L.C. already has several million of them as subscribers, particularly among college students. But that hasn’t stopped still-to-launch Xero Mobile from plans to give the college population 2 million free handsets so that it can offer them discounted mobile service in exchange for watching video ads on their phones. Then there’s Faith Communications Inc.’s Voce service, the luxury MVNO that aims to go after high-end customers.
Add in the traditional carriers-because they’re not letting those customers go easily, and are offering plenty of content and cool handsets themselves-and that makes for a crowded marketplace that will be ever more difficult for new entrants.
“I don’t think the market can bear a lot more competition in that same marketplace,” said Ersin Galioglu, vice president and general manager for real-time billing and network for Boston Communications Group Inc.. He noted that the content-heavy MVNO model in particular already is being used by several companies and that new entrants in that space would find competing difficult.
“It’s already being done,” Galioglu said. “I’m not sure how you’re going to get in there if you’re not bringing something more.”
MVNOs traditionally have operated in the prepaid space, and some of the new players continue in that manner, such as offerings by Circle K Stores Inc. and 7-Eleven Inc. However, many of the high-profile new MVNOs are going with postpaid services, and in some cases don’t have a prepaid offering at all-despite the fact that traditional carriers are seeing more growth coming from prepaid.
Galioglu also opined that no MVNO can long survive without a prepaid play, particularly since even the traditional cellular operators have seen an increase in the prepaid side of their customer mixes.
Ozgur Aytar, senior analyst for Pyramid Research, observed that while MVNOs used to focus on providing service while keeping costs low, the new MVNOs often have a very different approach to aspects such as marketing.
“These next-generation MVNOs are looking to have a different cost structure than your traditional MVNO, but they are looking to dramatically increase the ARPU levels,” Aytar said. Even with that goal, however, she added that “voice is still the killer application.”
MVNOs “really have to have competitive pricing plans that will convince people to switch over,” Aytar said. This is particularly important, she explained, because many MVNOs are targeting experienced wireless customers who are likely already with another carrier.
Where MVNOs aren’t looking to grab churning customers, they’re pushing into new segments. Several MVNOs are doing their best to appeal to kids-and the parents who’ll be footing the bills. Firefly Mobile has been promoting its simple handset for children and Disney Mobile wants to convince parents and youngsters that its service controls are the right way to go. Although Disney Mobile won’t start selling its U.S. service until June, it’s already making plans to take its offering abroad and has teamed up with United Kingdom operator O2 plc to begin offering wireless service later this year in the United Kingdom. The service will offer many of the same services that Disney Mobile plans to sell in the United States: controls on children’s usage and access to the Internet, plus Disney entertainment content.
Waiting in the wings is Kajeet, which plans to offer prepaid service for tweens but has not announced an expected launch date.
In terms of ethnic markets, Sprint Nextel’s Boost Mobile L.L.C. service has had a couple of massively successful quarters recently for its lifestyle brand that markets itself to ethnic urban youth. The prepaid service accounted for 44 percent of Sprint Nextel’s net additions in the first quarter of 2006. Movida Communications Inc. has targeted the U.S. Hispanic population of about 40 million, and another new MVNO, Azteca Mobile, plans to target an even more specific segment: U.S. citizens, mostly bilingual, who live along the southern border of the United States with Mexico and travel between the two sides of the border frequently, but do not want to pay international rates.
However, while most MVNOs seem to be focusing on youth and ethnic markets, not all of them are. BeyondMobile, which was formed so that its parent company CBeyond could offer wireless service along with other services it markets to small business. Greatcall is in the process of launching its Jitterbug service, aimed at older adults and for use as “emergency cell phones.” Greatcall recently unveiled the handsets it plans to offer, which have a large keypad, a bright screen designed to be easy to read and with “loud and clear” sound. The service itself promises easy access to operators who can set up the phone for the customer or place calls for them, along with other features designed to appeal to older adults. Flying J, which operates truck stops around the country and already sells Wi-Fi access to truckers, announced plans to start an MVNO to appeal to that market segment.
Estimates of how many customers an MVNO needs to survive range from a few hundred thousand to a few million, and it remains to be seen what end of that range most MVNOs will fall in to. Aytar predicted that the next 24 months “will really show the winners and the losers.”
